Payday loan uk

Pitfalls of the payday promise

Loans which you can pay back on payday sound great until you read the small print.

It might persuade you to investigate other ways to clear your debt, says Helen Monks

The Tube escalator ads asking if you "have too much month at the end of your money" may sound tempting to partied-out Londoners.

But, as This is Money can reveal, so-called payday loans can carry an equivalent annual percentage rate (APR) of almost 1,750 per cent. Compare that with the current base interest rate of four per cent and it doesn't exactly sound like a great offer.

What the posters don't tell you is that you get charged a flat rate for your loan, whether you take it out for two days or four weeks - the Slough-based Payday Loan Company, which runs the ads, allows you to borrow anything from pounds 80 to pounds 400, at a cost of pounds 20 per pounds 80 borrowed.

For a loan of pounds 80 over 28 days, worked out on an APR, this would be 1,734 per cent.

You can get a payday loan even if you have a County Court judgment against you, as long as you satisfy the lenders that you will have sufficient money in your bank account on payday to cover the repayment. You can also get a loan if you are self-employed or are paid weekly.

There are a number of ways, of course, to avoid needing such a loan, including paying for your shopping by cheque rather than cash or debit card.

Writing a cheque at the end of the month can buy you up to four working days before it is cleared, so this could save you taking out a bridging loan.

Anecdotal evidence suggests that folding cheques before handing them over may slow their progress in the clearing system.

Payday loans are big business in the US, where there are dozens of payday loan lenders offering quick-fix borrowing at astronomical rates. In the UK, such loans have been available in one form or another for around five years, though, according to the British Cheque Cashers Association, the market remains niche.

Once their loan is paid, payday borrowers will tell themselves that they will be able to start all over again. The problem is, loan renewals are built into the system - the Payday Loan Company website boasts a cheery icon reminding borrowers that "Renewing your loan is easy". Quick and easy renewals can lead borrowers into a routine cycle of debt, where charges can mount up into hundreds of pounds in weeks.

The Payday Loan Company told This is Money that it does not have a "typical customer", suggesting that people from all kinds of backgrounds are targets. Take a few simple steps, however, and this won't include you.

Just waiting for the night bus instead of taking two taxi trips a week from, say, the West End to Finsbury Park would save you around pounds 136 every month. Not buying a bottle of spring water every day and bothering to go to the watercooler will save you around pounds 20 a month.

Totted up, these savings could stop you from being caught short and would also make for a respectable pension contribution.

If you consistently run out of cash before payday, remember the alternatives. Liz Neild, at Marks & Spencer Financial Services, says: "There are plenty of ways to avoid paying high rates on payday loans.

If you have other loans or debts, it is in these companies' interests to help, so don't be afraid to contact them to see what they can offer.

You can always ask your employer for an advance."

Those with serious debt problems are advised to call National Debtline (0808 808 4000) or your contact your local Citizens Advice Bureau (www.nacab.org.uk).

So before you opt for payday loans, think about addressing the long-term problems you will only be deferring by taking out this kind of borrowing.

With a few cutbacks, you could be sailing past the escalator ads without giving them a second glance.

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